Nigerian Crude Palm Oil (CPO) producers Presco and Okomu oil will see revenue growth in the second half of 2024 on tight global CPO supplies which is feeding into higher prices.
“The elevated global CPO price, which is up by 8.7% YtD, has dovetailed neatly for local players, with both OKOMUOIL and PRESCO reporting impressive revenue performance in H1’24. Meanwhile, we see a strong possibility for volume growth, as Nigeria remains a net importer of CPO,” Cardinal Stone analysts led by Rufai Abeeblahi, said in an Aug. 2 note.
Indonesia, which accounts for about 60.0% of the world’s most widely consumed vegetable oil, is expected to have a sustained decline in the export of CPO, reflecting rising domestic demand and relatively stagnant production.
Malaysia, the second-largest CPO producer, also faces stagnating yields. Oil palm trees yield best between 9-18 years, after which productivity declines, necessitating replacement.
According to S&P Global, around 30.0% of Malaysia’s oil palm trees are over 19 years old, with replantation rates lower than the ideal 4.0-5.0% annually, averaging just 1.0-2.0% due to high costs and the need for better replanting materials, especially by smallholder farmers.
Consequently, CPO production is forecasted to dip by 0.3% in 2024/25, with yields per hectare expected to decline by 2.9%
Nigeria’s production led by the top 2 players Presco and Okomu is estimated at 1.4MMT, with demand outstripping it at 3.0MMT.
Against the backdrop of the inherent domestic demand supply gap, Cardinal Stone says sector players could continue to expand capacity to, at best, meet domestic demand.
Presco appears to have more legroom to increase supply, as the potential acquisition of Ghana Oil Palm Development Company (GOPDC) will likely increase Presco’s plantation size to 51,760 hectares.
Okomu Oil’s management has however indicated that they have no further capacity to increase land area aside from the 1,200/HA unused land.
“The unused land is unlikely to be cultivated until 2026, and the first production is expected in 2029. The major volume upside is the 10,000 tons – 25,000 tons of FFB management is looking to obtain from external oil palm farmers,” Abeeblahi said.
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